Is gambling a form of investing? This article is going to investigate.

You may have heard people in the past talking about how gambling is similar to investing in the stock markets. This is true to some extent as both risk money in order to make more than they started with.

There is more to it though. Both investing and gambling require knowledge of what they’re either investing or playing, otherwise there is no way that they will profit.

It’s also important for both an investor and a gambler to pay attention to how much capital they are willing to risk. If it’s not managed properly, it becomes more likely they lose bigger than they should.

It can be seen already that investing and gambling are quite similar. But how and why are they considered different?

To get to the bottom of this, it’s important to first define the terms ‘investing’ and gambling.

 

What Is Investing?

Investing is committing funds to a certain asset with the expectation that it will grow in value to make a profit. The important word here is ‘expectation’. Investors make their money expecting, rather than hoping, that their assets will increase in value.

 

Investing requires an understanding of risk and return: investing in low-risk assets generally means that returns are expected to be low, while investing in assets at higher risk generally means that returns are expected to be high.

It always comes down to how much an investor is willing to risk in their asset. The standard amount is usually around 2% of their total capital per trade.

To gain an advantage and make money, traders study the markets and current affairs to get a better understanding of their movements. For example, they will look at their charts and look for patterns that have happened in the past and use their results to predict how the current asset price will move.

This process is known as technical analysis.

It’s also important to note that an investor’s returns can sometimes be affected by the commission they pay to a broker that buys or sells their assets on their behalf.

Finally, investors own a part of the company they are investing in.

 

What Is Gambling?

 

Gambling is the act of staking money on a contingency rather than an asset. It involves risking money on an event with the hope that it makes money.

Straight away, this definition shows a difference between gambling and investing. Traditionally, gambling has no certain outcome and relies a lot on chance. 

But there are ways to reduce the risk, such as creating a data-driven strategy. Particularly in used in sports betting, this involves analyzing the results of previous games, creating a theory and then backtesting it to make a profit.

Like investors, gamblers should also keep an eye on how much capital they are willing to use per bet. For example, in card games like poker, pot odds are a great way to determine risk versus reward during a hand. When the odds are in the player’s favor, it’s more likely that they will call a bet.

For casino games, gamblers play against the casino itself, known as ‘the house’. In sports betting, while they are in theory betting against the house, it’s the other players that determine the odds of the event they are betting on. The more money that goes on one side of the betting line, the shorter the odds become.

Gamblers are commonly faced with situations where they do not expect to win. For example, in blackjack, when the dealer is dealt a ten and the player is dealt a six, the chances of winning are slim. 

So, here are some key takeaways from these two definitions:

1. Both investing and gambling risk money in an attempt to make a profit.
2. Both investing and gambling use tactics to minimize risk.
3. Both investing and gambling can use resources to improve accuracy.
4. Investors have more resources available to mitigate losses.
5. Gamblers play knowing that the odds are not in their favor.

Mitigating Losses

This is an interesting topic. 

Investors have multiple ways to prevent them from losing too much of their capital. One such method is by setting stop losses on asset investment. If the price drops below 5% of the purchase price, there is an opportunity to exit the trade and sell that asset to someone else, retaining 95% of the risk capital.

Now, in terms of gambling, some people will argue that there is no way to limit losses. An example they will use is taking part in an office sweepstake, where everyone pays a fee in exchange for drawing a random competitor. If the price is $10 and the team loses, the gambler is said to have lost everything.

However, this logic is often misguided.

In reality, professional gamblers employ a strategy called bankroll management. It involves only betting a certain amount of gambling capital per bet and ensures that even if bets lose, they don’t go broke.

Most bankroll management strategies can ensure that 100-200 bets can be made at their particular level. For example, if someone regularly stakes $10 per bet, they will have at least $1,000 in gambling capital.

If the gambler goes on a downswing and loses the majority of their bets over a certain period of time, then they decrease the amount they bet per event to ensure they can still make between 100-200 bets at that level. So, using the previous example, if someone betting $10 per event goes on a downswing and they lose $500, they would reduce their betting amount to $5 per bet.

So all in all, this is actually a similarity between the two ways to make money: both gambling and investing have ways to mitigate losses.

 

Edges And Value

It was established that both investing and gambling use methods to mitigate risk and maximize the chances of making a profit. However, in the case of gambling, the house always has an edge over the player. 

On the other hand, investments tend to appreciate in value over time.

Now, this does not mean that gambling can not make a lot of money, nor does it mean that investing in assets always guarantees a positive return. 

While the odds always favor the house, it’s important to seek value from bets to maximize returns. 

The term value refers to getting the best odds and making the best play based on the information available. In sports betting, this could be in the form of a heavily underpriced underdog, while in poker, it refers to making a bet with the assumption you have the best hand.

 

Time

 

Time is another difference between gambling and investing. Gambling is constrained by time. While online casinos can keep you gambling all day and night, no matter if it’s a hand of poker or a horse race, it comes to and at some point or another.

When the event finishes, the opportunity to profit further also comes to an end. Either the bets have won or they have lost.

On the other hand, investing in assets can be rewarded by time. When an investor enters a trade, it will go on for as long as that asset is real. For example, if the asset was stock in a company, the trade could, in theory, continue until the company is sold or goes bust.

One way is when investors are paid by companies that they have invested in with dividends. No matter what happens to the value of these shares, the company pays money to the investor in return for the investment. 

While it’s great to make money from the appreciating price of the asset, it’s even better to be rewarded for simply investing in the first place.

 

Gathering Information

Both gamblers and investors can improve the success of their trades by looking at past results and comparing them with current performances. Information is the most valuable tool for both investors and gamblers but there is a difference in terms of how much is available.

Investors can gather information from a variety of sources, such as company reports, financial institutions and, for stocks and shares in particular, even through researching the people running the companies before having to commit a dime to the investment.

The same goes for sports betting. Professionals can find data that affect the results, such as the weather from historical websites and sports news companies. Similar to investors, they can put all this information into a strategy before betting anything.

However, for some casino games, even if you do all the preparation in the world, there is no information about what happened at the table earlier in the day that can help to make a decision during play.

 

Addiction

Now, to most people reading, their minds went straight to gambling addiction. Why? Because it’s assumed that there is no such thing as an investing addiction.

This isn’t strictly true.

Of course, compulsive gambling is a problem that must be addressed. Organizations like Gamblers Anonymous help people overcome their addictions. But there is no such thing as Investing Anonymous, while there are never any news reports detailing the effects of compulsive investing.

Addiction to investing does exist. It’s just seen as a financial problem, rather than an addiction.

People who invest online are prone to checking their investment portfolios on a very regular basis. They will also make multiple trades more often than they probably think. This can get very expensive: not only are they paying a lot in commission to brokers, but they are also investing a lot of energy.

There are also investors that risk capital more aggressively than they should. If the wording was changed to ‘gamblers betting more money than they should’, it clearly points to a problem.

 

Risk-Adverse Vs Risk-Seeking

Gamblers and investors rely on taking risks to make money. Granted, some investments like government bonds held to maturity don’t have much, if any risk attached, but then again, they are prone to the risk of inflation.

The difference lies in the individual’s willingness to find and accept risk. Investors don’t tend to take risks unless there is a large reward, whereas gamblers are forced to take risks with every bet.

There is a notion though that gamblers often take risks that they shouldn’t, while investors do not. Like many of the topics discussed, this is not necessarily true.

Here’s an example.

An opportunity arises where an individual is presented with the following opportunity: they can either take $100,000 right now or risk $1 million on a 50/50 chance.

The obvious, most common response is that taking the 50/50 means the individual is more of a gambler. After all, they are passing up the opportunity of $100,000 without having to risk a thing.

But looking at it objectively, the individual needs has odds of 10/1 to improve. To profitable make this investment, they need to be right 10% of the time. In a 50/50, they are right 50%, so they have 5x more equity needed.

Is this a gamble or a good investment opportunity? One could argue either way.

Of course, gamblers that think this way are different from those that are heading to Las Vegas for the weekend looking for a good time. Those that look to justify their bets before making them act more like an investor.

 

Conclusion

Gambling and investing are more alike than most people think. They both require careful management of capital, using resources to make their trades and plays more accurate, while also having the ability to give an individual financial freedom.

But of course, they are different. Investors are not limited by time and gamblers do not always have the luxury of using past information to help them make informed decisions.

One thing is certain though: whether it’s via investing or gambling, it’s important to understand the purpose of each trade and bet. Otherwise, it really does become a game of chance.

When frequenting online slots, it’s easy to call crooked reels and rigged games when things aren’t going your way. 

You might argue your side and if you’re in a heated discussion with friends, you might even persuade one or two that the games have some form of a fix.

After all, who would actually be able to tell? With everything online, we might all be playing a fool’s game with nobody ever actually winning the big jackpots. 

Lose for long enough and you’ll start questioning the legitimacy of the past winners, online leaderboards and news stories that all inform of life-changing sums despite being sat without a pair of pennies to rub together.

It wouldn’t be a surprise, everything else in the world can be rigged so why not online slots too?

You’re not alone in your thinking and many people often wonder: Are online Slots Rigged? The answer, however, is no.

Providing that slots you’re playing are licensed by a recognized body, there’s no way an online slot can be rigged. 

They may have a house edge, but try and find me a slot, online or elsewhere, that doesn’t. Providing they’re licensed, they’re recognized as a fair game, but to understand the criteria of what makes a fair online slot, we need to delve into the details of how an online slot actually works. 

 

It all started with the mechanical slot

The very first slots, dating back to the late 19th century, were mechanical and although lacking in features, were charming in their simplicity. 

Pull the handle of the one-armed-bandit and you’ll be able to hear the gears turning, spinning the reels and chancing your luck at a jackpot.

With a physical machine, it’s much more difficult to rig, yes there’s the chance that there’s never going to be a winning payline, but it’s unlikely to rank as popular with the players so there’s very few around. 

In a typical mechanical slot, players insert a coin and pull the lever which triggers the spinning of the reels.

This action allowed the reels to operate like tumblers inside a combination lock, activating a payout when the correct combination hits and the tumblers align.

A series of metal pins, known as the payout trigger, would work in tandem with the reel plate and determine the payout value – the better the combination, the longer that the trigger will be released, the more coins a player will win. 

If you’re mechanically minded, you’ll see how it works and why they’re particularly difficult to rig without the use of electronics.

Parts will have to be custom made, fettled with and altered to make sure the reels aren’t making combinations and more often than not, it’s more complicated to make a fixed machine that it would be an honest one.

It’s a simpler time, sure, but there’s not exactly the same level of action that we see in the modern-day slot. 

 

The evolution of electronic and online slots

It didn’t take long for the typical mechanical slot to evolve to the electronic equivalent and before long, the electronic slots developed into the online slot we all know and love. 

The mechanical internals of the slot was swapped for a digital one and instead of gears running the reels from a pull of the lever, motors were used to spin the combinations of symbols, leaving the lever for purely nostalgic reasons.

Compare this to online and you’re now just clicking your mouse or tapping your screen over a button labeled ‘spin’ and trusting it to be fair. 

There may have some serious steps forward, but to understand exactly how the online slots work, it’s important to know the logic behind them to make a valid judgment as to how fair the online slot actually is. 

 

How the online slot works 

Online slots are different to both electronic and mechanical in that they don’t exist at all in the physical space, but instead in the digital world as a series of algorithms. 

The slot may be designed in an attempt to mimic the reels of the past, but don’t be fooled by flashy graphics and exciting features – the games are simply lines of code that you’re playing through the screen. 

So what are the algorithms in place and what do they mean for our winnings? 

Return to player (RTP) rates 

The first number that we’re taking into account is the RTP rate and is featured across all three different forms of slot machines. 

The return to player (RTP) rate is the percentage that a player should expect to win back of the sum that they’ve entered into the machine. Usually, you’ll find the RTP set around the 95% mark to lure players into believing that they’re not actually losing all that much money by keeping their win rates high. 

In mechanical slots, this value is typically unknown due to the nature of the ‘random’ internals, but with electronic and online slots, the number is predetermined and written into the software when the game is created. 

The minimum theoretical payout percentage is defined by law or regulation but varies depending on the jurisdiction.

In the state of Nevada, this percentage stands at 75%, in Mississippi, it’s at 80% and New Jersey sticks at 83%.

Any less than this and the slot machine is breaking the rules and will be subject to legal action if discovered. 

Historically, many casinos, both brick-and-mortar and online, have been unwilling to publish the data surrounding their machines RTP values, making it impossible for players to know the theoretical return on the games they’re playing. However, particularly recently, these figures have been reaching the public domain via the release of information from casinos and the independent studies of gambling authorities. 

 

RTP and variance

The return to player isn’t the only figure that’s of interest to players of the casino, the variance is perhaps of equal importance when picking a slot to play. 

In theory, the higher the RTP rate, the less chance of losing significant sums over a long period of time you should expect.

Of course, this should only be used as a guide and it should be noted that those with lower RTP rates commonly offer increased opportunities for bigger one-off wins. 

This effect is due to the impact of variance, a term describing the type of payout that should be expected from a slot machine.

A slot that boasts a high variance will pay out less frequently but will pay out large sums when a player finally wins.

The opposite is true for slots claiming a low variance with players find payouts more often but in smaller denominations. 

Regardless of variance, RTP should be the main figure of interest and regardless of what type of wins you’re hunting down, the larger RTP values should always be the main focus and make up the bulk of play.

 

Random number generators (RNGs)

If we’re going to discuss how the online slot functions to make sure there’s a fair chance of winning and losing, we’re going to need to talk about random number generators (RNGs). 

An RNG is exactly what it says on the tin, it’s a piece of code written into the game’s architecture that allows for random numbers to be generated, meaning that each player has the same chance to win as the next. 

RNG’s display a set of numbers to the system each time the reels are spun when playing an online slot. These numbers generated are then translated into the results that we see on the screen, leading to different combinations of paylines.

The RNGs will coincide with the RTP of the slot and although the numbers generated will be truly random, they will be developed in such a way that still permits the desired RTG. Clever right?

What’s maybe most important to note is the memory of the system that dishes out the jackpots and although it may feel like a slot is ‘hot’ or ‘cold’ during different times of playing, they’re actually completely oblivious to past events. 

The system itself has no memory, therefore, it cannot dictate when to permit wins and/or losses depending on how much players have previously won/lost. That means it’s equally likely to hit a jackpot immediately following another big win – the odds are the same. 

Ultimately, your fate is in the hands of the algorithm and there’s not a lot you can do to change its mind. 

 

The licensing of fair games

The way a slot works might make sense when it comes to the theory, but when you consider that the developers of the games are in charge of the payouts, a little bit of skepticism might start nagging away once again. 

You’d be absolutely right to question the word of the game developer, after all, who’s going to sell more slots – the one that pays back more or less to the player?

It’s a point that emphasized even further when it comes to the online casino market with plenty of suppliers creating their own games for maximum control and maximum profit – so why would we trust these slots? 

Thankfully, you don’t just have to take the word of the game developers that you’re in safe hands, instead, you can rely on the independent regulatory authorities and their licensing powers to ensure that all games are fair to play and match their stated RTPs. 

But it’s not just the games providers that need the licensing to prove that they’re providing a fair product – all platforms used must have a trustworthy casino license by a recognized body to ensure that they’re up to scratch.

The license takes into account all things safety from the standards of security to the customer service that online casinos provide. 

Authorities are incredibly thorough so it’s not just a case of a quick flick through and a license granted, but a solid look into different forms of criteria to make a judgment on both the games and the casino.

The credentials of the casino will be checked across a range of indicators, the financial clout and business competence evaluated and the policies in place to allow for a reputable organization to form. 

It’s then and only then that the casino will be granted a license, but expect regular check-ups and interest whenever there’s game development from these entities.

How to make sure you’re playing fair 

 

If you’re sat there wondering whether or not you should be concerning yourself with the credentials of the casino – the conclusion is simple – you should always check the casinos licensing and reputation. 

By only playing at licensed casinos you’ll be sure that you’re only gaming where it’s fair and where your personal data is safe and secure.

You don’t want to be playing subpar games with subpar odds with insecure data, so this is an absolute must when checking out new places to play. 

In cases in which companies do not post official data regarding the RTP, it is good practice to investigate third-party testing companies that have the chosen slots within their portfolio.

Third-party sites are often out to help the consumer and they’re usually particularly trustworthy, especially when visiting well-respected sources. 

The best bet is to target games that come alongside published payouts so you can ensure you’re getting the fairest deals.

Rival and BetSoft casinos are great examples of fair places to play and with payouts published online, you’ll know exactly what you’re getting involved with when you’re heading to the slots. 

Ultimately, it’s a case of keeping your wits about you. Providing that you’re playing at a reputable, well-known and reliable site, the chances are that you’ll be in safe hands when spinning the reels.

The grey area comes with newly launched casinos that lack the licenses that we’d expect to be associated with the games. 

If you’ve spotted a dodgy one, it’s best to steer well clear – there’s plenty of other places to play – no matter how good the sign up offer is!